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Sunday, June 03, 2007

Sharekhan Investor's Eye dated June 01, 2007


Crompton Greaves
Cluster: Apple Green
Recommendation: Buy
Price target: Rs280
Current market price: Rs250

Price target revised to Rs280

Result highlights

  • Crompton Greaves Ltd's (CGL) revenues grew by 25% year on year (yoy) in Q4FY2007 to Rs990.0 crore. The revenues were slightly below our expectations. The top line of the power system division grew by 37.1% to Rs560.1 crore. The revenues of the consumer product division grew by 9.3% to Rs276.7 crore while that of the industrial system division rose by 22.2% to Rs240.8 crore.
  • The operating profit margin (OPM) of CGL improved by 80 basis points to 11.5% from 10.7% in Q4FY2006. The raw material cost/sales ratio rose by 40 basis points to 71.4 % in Q4FY2007 from 71.0% in Q4FY2006. However, lower employee and other expenses helped in the overall improvement in the OPM. The operating profit grew by 34.2% to Rs114.3 crore.
  • The profit before interest and tax (PBIT) margin of the power system division improved by 450 basis points to 13.9%. The consumer product division's PBIT margin improved by 50 basis points and the industrial system division's PBIT margin improved by 450 basis points on a year-on-year (y-o-y) basis.
  • Consequently, the profit before tax (PBT) increased by a strong 36.5% to Rs106.3 crore.
  • CGL provided for full tax rate in Q4FY2007 as against the minimum alternate tax (MAT) rate in Q4FY2006. The increased tax provisioning led to a lower bottom line growth of 24.7% to Rs69.9 crore.
  • The stand-alone order book grew by 40% to Rs2,300 crore. The consolidated order book stood at Rs4,400 crore out of which Rs2,100 crore came from Pauwels and Ganz Transelektro Villamossagi Zrt (GTV).
  • In view of the robust top line growth, expansion in margins, continued good performance of Pauwels and the expected stabilisation in the operations of GTV in FY2008, we are maintaining our FY2008 estimates. At the current market price, the stock is trading at 23.9x its FY2008E consolidated earnings and 13.6x its FY2008 EV/earnings before interest, depreciation, tax and amortisation (EBIDTA). We believe that these valuations are attractive because of (a) the robust operating performance of the stand-alone company; (b) higher geographical reach and product depth of its subsidiaries; and (c) its management's expertise in turning around loss-making subsidiaries. We maintain our Buy recommendation on the stock with a revised price target of Rs280.

Madras Cement
Cluster: Cannonball
Recommendation: Buy
Price target: Under review
Current market price: Rs2,800

Q4FY2007 results: First-cut analysis

Result highlights

  • The cement volumes of Madras Cement grew at a slower rate of 13% to 1.48 million metric tonne (MMT) in Q4FY2007. The volume growth was lower because the company's plant at Alathiyur was shut down for 15 days on account of maintenance work. The realisation growth was strong at 27% year on year to Rs2,923 per tonne. This resulted in a robust top line growth of 45.1% year on year to Rs435 crore.
  • The operating expenditure increased by 29.4% year on year to Rs301.8 crore as the power and fuel cost increased by 25% year on year to Rs85 crore on the back of higher international coal prices and increased freight cost. The freight cost increased by 35% year on year to Rs72.8 crore during the quarter. The employee cost too jumped substantially to Rs18 crore from Rs12 crore in the previous quarter on account of the bonuses given to employees.
  • The operating profit doubled year on year to Rs133 crore whereas the operating profit margin improved by 800 basis points year on year to 30%. On a sequential basis, the operating profit margin dropped by 270 basis points.
  • The interest cost reduced by Rs3 crore year on year to Rs6 crore, thanks to the repayment of debt in the quarter. The depreciation provision remained more or less flat sequentially at Rs18.2 crore.
  • With the tax provision made at a marginal rate, the net profit jumped by 117% year on year to Rs71 crore.
  • We will update you with a detailed report on the company's fourth quarter results as and when we get in touch with its management.

VIEWPOINT

SREI Infrastructure Finance

SREI, BNP Paribas arm in 50:50 JV
SREI Infrastructure Finance (SREI) and BNP Paribas Lease Group (BPLG), the leasing arm of BNP Paribas, have reached an agreement regarding a strategic partnership in equipment finance in India.

Sharekhan Investor's Eye dated June 01, 2007